This week has seen the stock market at its most uncertain for a long, long period. Yes, over the last few years we know that we have seen a disastrous performance followed by a recovery to bring the major indices back to not far off their pre recession peaks.
- However this week all that looks as if it has come to an end with the bears and bulls locking horns and neither giving much ground.
- All week it has looked as if reality was dawning on the optimists only for the bears to give up much of the ground they had gained.
So can gold really beat $1240 this coming week?
The bulls eventually retreated despite the Dow and S&P 500 seesawing during Fridays trading hours.
What this means for gold and silver remains unclear. The simplistic analysis is that prices for both metals will benefit hugely from the continuing withering economic outlook, particularly now that further pumping of dollars into the economy is being considered.
That gives an emphatic lie to a recovery continuing to be under way as peddled by Government spokesmen and Wall Street’s commission generators.
Be that as it may the fact is that when the indices slump the demand for liquidity increases and both gold and silver frequently suffer as profits are realized and cash is raised.
This week saw the largest bullion holding ETF, SPDR Gold Trust (GLD) building its stock of physical metal to a high for the year, with the Chinese overtaking the Indians as the largest purchasers of gold, despite an upsurge in Indian buying after steering clear for a good few months as the high prices scared them off.
Furthermore the demand for retail gold in the form of bars, coins etc. has soared with many mints, refiners and dealers running short or out of stocks.
This of course may very well mean, in the likely event that further falls on Wall St. occur in the coming week, that there will be enough buying pressure to see gold push on up to $1240 an ounce, the next level indicated by our favorite chartist.
The silver performance has been unusual recently as it has not kept in lock step with gold. On Thursday the gold /silver ratio was over 66 and only managed to get just under that by Fridays close.
We are still looking, and expecting the ratio to eventually drop below 60. Even that will be more than five points higher than it’s historical average. In our opinion silver has a good chance of comfortably exceeding $19 an ounce next week if gold can sustain its present price of $1215 an ounce and consequently will not fall on liquidity demands.
How we hate the term `risk aversion` which we could have used in this context but anybody who puts their hard earned bucks into any business or investment is not and has never been averse to risk.
It is the degree of risk that we are prepared to take that is the issue. In this case we are prepared to accept this degree of risk and buy silver for a short term gain if the criteria we have expressed is met.